Nov. 15 (Bloomberg) -- Chinese banks’ bad loans increased
for a fourth straight quarter, the longest streak of
deterioration since the data became available in 2004,
highlighting pressures on profit growth as the economy weakens.

Non-performing loans rose by 22.4 billion yuan ($3.6
billion) in the three months ended Sept. 30, to 478.8 billion
yuan, the China Banking Regulatory Commission said in a
statement on its website today. Bad loans increased at all types
of institutions, including the largest state-owned lenders,
rural banks and foreign banks, the regulator said.

China’s banking system is grappling with rising defaults
and weaker loan demand after economic growth decelerated for a
seventh quarter. Combined net income growth at the nation’s
3,800 lenders slowed to 14 percent in the third quarter from 23
percent in the second, the regulator said today.

“We expect banks’ bad loans to climb mildly for another
quarter because borrowers normally face a liquidity squeeze
before year end,” said Xie Jiyong, a Shanghai-based analyst at
Capital Securities Corp. “The trend will stabilize early next
year if the economy starts to pick up and companies’ repayment
ability improves.”

Shares of Hong Kong-listed China banks are trading at an
average 5.5 times their forecast profit for 2013, compared with
10 times for the benchmark Hang Seng Index.

Chinese commercial banks’ delinquent obligations may rise
10 percent this year and accelerate in 2013 if concern that
inflation is rebounding leads authorities to tighten monetary
policy, according to China Orient Asset Management Corp. The
company is one of four state-owned asset managers established in
1999 to take over trillions of yuan of bad loans from the
country’s largest lenders.

Non-performing loans, or those overdue for at least three
months, accounted for 0.95 percent of banks’ total advances as
of September, up from 0.94 percent in June, according to the
regulator.

Chinese banks’ net interest margin, a measure of lending
profitability, widened to 2.77 percent in the third quarter from
2.73 percent in the second, according to today’s statement.
Their capital adequacy ratio rose to 13.03 percent as of Sept.
30, from 12.91 percent in June.

Banks extended 505.2 billion yuan of local-currency loans
in October, down 14 percent from a year earlier, the central
bank said this week. Weaker-than-forecast credit expansion may
limit a rebound in economic growth as the ruling Communist party
anoints new leaders.